Any good 90% bridge loan options?

Question

Hi Everyone,

I've identified a three family property in a high cost area just north of Boston (Somerville Massachusetts, next to Cambridge and Boston) and am exploring how to take it down. It's in a great location( one block from the train and near a bunch of high end lab space). The property is going to be just over a million, needs a light refresh( maybe 60k) and an ARV or 1.3-1.4. This will be a long term buy and hold.

My question is I would like to take it down with 10% down. Does anyone have any recommendations on a bridge loan company/product you would recommend ? The two lenders I normally use(bigger banks, not hard money) both require 20/25 percent down. I would be looking to do a light refresh,get tenants in, and then re-finance into one of my portfolio banks( no seasoning). Ideally looking for 6-12 month terms, 10 percent down, 75% ARV and a decent interest rate.

About me: I do have a heloc I could draw on,  and also have some friends with some money so I could work with my bank to figure it out( which I'm sure could be cheaper) but I'm also looking to scale and weigh my options to do that. Around here there are a lot of developers who use hard money/cash and can close fast, and that is one thing my banks can't do(they are about a month).

I've done a few flips maybe 6-7 years ago, and have slowly been growing a portfolio of a few properties around Boston( all were major rehabs). Strong income and 800+ credit score.

Any decent products out there worth looking at that you have had a good experience with?

Alex Bekeza · Answer

@Justin Rank There are commercial/hard money options out there for this.  I know of a 90% LTC option for flips/brrrs but it requires 3 deals experience in the last 36 months.  However, you could still get up to 85% of purchase + 100% of rehab w/o that experience as long as you stay within 70% ARV.

Justin Rank · Answer

@Phillip Walker who have you used before/know of being good?

Phillip Walker · Answer

There are good 90% Bridge loans. Your exit strategy would be to transition to a buy and hold for up to 30 years.

Dan K. · Answer

@Justin Rank -- Got it, didn't realize you are holding other RE -- just saw you mentioned flips a number of years ago.

I have gone down this route, but I really thing you'll do best with traditional lenders. The fees involved with hard money are going to kill your numbers on this deal. I haven't done a hard money deal as a borrower (besides representation from the legal side), but the structure is best when you are looking at a very big spread between purchase price and ARV.

I have done a couple of discrete hard money deals and happy to take this conversation offline. To be honest I'm not sure what upside you're offering to somebody who is willing to parking $1m for 6-12 months.

Justin Rank · Answer

@Dan K. Our best leads come off Craigslist, but we also use PM software that will send the listings to third parties. I usually get something off it, but not as good as Craigslist.

I didn’t go enough into detail, but my other properties have low leverage ratios and one is paid off(central mass). We are closer to mid 6 figures than low six figures.

Our “big” bank that we just did a refi with and have a great relationship with looked at the deal and said they would do the Somerville triplex deal, with the traditional down payment. The point of my post was to see if other options existed to scale using short term money with a lesser down payment.

Dan K. · Answer

@Justin Rank

Two subject --

Renter prospects

What sites did you use to find prospective tenants? We find that Craigslist has much better potential tenants (they need to be able to send an email and tell us about themselves) vs. Facebook. However, it seems like the world has moved to Facebook.

To be honest, we have great products in Cambridge and it's very difficult right now. I'm not overly concerned, we have enough cushion to absorb short-term market changes.

Keep in mind how different April was compared to now. If you work for a larger Boston company, how many "young professionals" have moved back in with their parents? In my experience a lot.

Exit from private money loan

If you alone or you and a married partner or co-investor make "low 6 figures," qualifying for traditional financing might be difficult to be completely honest. You said you have access to a HELOC on your primary. I assume you have debt on that.

I'm not asking about your personal finance, instead I'm asking the types of questions that a traditional lender will ask. Keep in mind, they aren't going to take into account rent on the property, instead they are only going to look at your W-2 income (other investment income if it has been established), current assets and debts. When using a portfolio lender they have some flexibility, but they still need to look at ratios like debt to loan, etc.

The easy way of looking at it -- could you right now buy a house on the Cape or Islands for $1.3m and receive traditional financing? Your lender will look at current leases and future leases for 2021-2022, but those will be mitigating factors to help push you over the edge if you are on the edge.It's frustrating -- I'm sure your underwriting shows that you can pull it all off with a comfortable margin of safety. However banks (even small local banks) still have pretty stringent underwriting standards. If you have very large deposits 6+ figure with a bank, that does help.

Justin Rank · Answer

@Dan K. I ran our numbers with a margin of safety for further rent declines and they were tighter, but still ok. I usually run numbers like that on all my properties and have a game plan if rents drop x percent or worst case scenario can’t fill units. My three family in Somerville had a unit open up in April( we let tenants out of their lease early so they could be with family out of the country) and had the apartment re-rented right away. The market is softer but from my experience if you have a nicer product(we usually do)at a good price point you will drive applications. We had 14 people apply for that unit in a day and a half and I had to take the ad down after a weekend.

I’m not worried about the debt, we are in secure job positions and pull in low to mid 6 figures.Ultimately, I’m looking to see what’s out there for these type of short term loans so I know what my options are. Traditional might be my route, but as I stated in my original post I have a few reasons to look outside of traditional, I would be open to either secured or unsecured.

Dan K. · Answer

@Justin Rank -- What sort of loan terms are you suggesting? Secured or unsecured?

- Honestly, the numbers are fairly tight and keep in mind it's very difficult to find tenants close to Boston. My guess is that your post rehab rents will be about equal to pre-COVID rents for the next 6-24 months. I'm just not sure there is enough "meat on the bone," for a hard money lender to make money while also satisfying your goals.

- Additionally, can your W-2 income support the additional debt?

- Why not just take it down with traditional funds, dip into savings for the $60K repairs and refinance afterwards? By the time between closing and getting a refinance your mortgage should be seasoned. Keep in mind it could take 60 days from your refinance application to the closing on the refinance.

Lien Vuong · Answer

@Jason Denoncourt - can you help?

Any good 90% bridge loan options?

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